The Federal Housing Finance Agency (FHFA) has issued a statement saying it has not consented nor will it consent to the foreclosure of a GSE-backed mortgage loan when initiated by a homeowners association (HOA) that has attached "super-priority" lien status to a mortgage loan.
Several states currently allow HOAs to enforce the super-priority lien status and foreclose on a home non-judicially when the owner falls behind on his or her HOA dues – thus extinguishing the note held by the mortgagee, which in many cases suffers losses totaling hundreds of thousands of dollars as a result.
The issue has been a particularly hot one in Nevada in the last year, where the state supreme court made a controversial ruling that gave HOAs the power to foreclose on a home and extinguish a mortgage non-judicially, a ruling that was subsequently appealed by lenders. In order to protect Fannie Mae's and Freddie Mac's property rights, FHFA intervened in two Nevada cases in which an HOA extinguished a mortgage.
In its statement released Tuesday, FHFA quoted Title 12 United States Code Section 4617(j)(3), which states that "[no] property of the Agency shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the (FHFA)" while the Agency acts as conservator for Fannie Mae and Freddie Mac.
"This law precludes involuntary extinguishment of Fannie Mae or Freddie Mac liens while they are operating in conservatorships and preempts any state law that purports to allow holders of homeownership association (HOA) liens to extinguish a Fannie Mae or Freddie Mac lien, security interest, or other property interest," FHFA said.
The Agency released a statement on December 22 vowing to protect mortgages backed by Fannie Mae and Freddie Mac from organizations such as HOAs and energy retrofit financing programs that attach super-priority lien status to mortgages. FHFA warned that it would not allow a super-priority lien declared by an HOA or other organization to push mortgages backed by Fannie Mae and Freddie Mac into the secondary position because of the risk they pose to taxpayers while the GSEs are under the FHFA's conservatorship.
"FHFA has an obligation to protect Fannie Mae's and Freddie Mac’s rights, and will aggressively do so by bringing or supporting actions to contest HOA foreclosures that purport to extinguish Enterprise property interests in a manner that contravenes federal law," FHFA said in Tuesday's statement. "Consequently, FHFA confirms that it has not consented, and will not consent in the future, to the foreclosure or other extinguishment of any Fannie Mae or Freddie Mac lien or other property interest in connection with HOA foreclosures of super-priority liens."